## 1rwaea2024001

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---

### Executive summary — context and program architecture
- The Rwandan economy continues robust growth despite a challenging external environment, repeated shocks, and ongoing fiscal consolidation.
- A 14-month Stand-by Credit Facility (SCF) arrangement, with access of 125 percent of quota, was approved in December 2023 to support short-term BOP needs and recalibration of near-term policy adjustment in response to climate-related shocks.
- The SCF is being implemented concurrently with a 3-year Policy Coordination Instrument (PCI) and Resilience and Sustainability Facility (RSF) arrangement, the latter with access of 150 percent of quota ($320 million), approved in December 2022.
- The PCI focuses on strengthening fiscal and monetary frameworks and building socioeconomic resilience; the RSF advances reforms in green public financial management (PFM), climate-resilient public investment management (PIM), climate-related risk management for financial institutions, and disaster risk reduction and management.

### Recent developments and program performance — key findings
- Growth and labor market:
  - 2023 GDP growth: 8.2 percent year-on-year.
  - Unemployment rate: 16.8 percent overall; 20.1 percent for women; 20.3 percent for youth.
- Inflation (March 2024):
  - Headline CPI: 4.2 percent.
  - Core inflation: 5.8 percent (from 5.5 percent in February).
  - Instantaneous headline CPI: 6.5 percent (from 2.8 percent in February).
  - Instantaneous core inflation: 7.3 percent (from 3.9 percent in February).
  - Domestic food inflation: 27.8 percent in July 2023 to 2.5 percent in March 2024.
- External sector and reserves:
  - Rwandan franc depreciation: 18 percent year-on-year against the US dollar at end-2023.
  - International reserves: 4.1 months of prospective imports at end-2023.
  - Overperformance in reserves driven primarily by earlier-than-expected World Bank budget loan disbursements and other budget and project support in December 2023.
- Fiscal and reconstruction:
  - Fiscal deficit in H1 FY23/24 lower than anticipated due to lower expenditure.
  - Post-flood reconstruction spending: RWF 36.8 billion (0.2 percent of 2023/24 GDP in H1 FY23/24).
  - Net lending 0.3 percent of GDP lower than expected at the second review.
- Financial sector:
  - Banking sector by Q4 2023: profitable, well-capitalized, significant growth in deposits and loans (especially household loans).
  - Microfinance sector: strong profitability and robust capitalization; loan growth surpassed deposit growth.
  - Moderate and generally stable NPLs following a spike during 2020–21.
- Program implementation status:
  - All end-December 2023 PCI quantitative targets / SCF performance criteria, all PCI continuous targets / SCF continuous performance criteria, and all standard continuous targets were met.
  - 3-month average headline inflation of 8.9 percent came within the inner-bound values (6±3 percent) of the Monetary Policy Consultation Band for end-December 2023.
  - Conditionality met: spending rationalization strategy (end-May 2024 RT/SB) and dynamic social registry (end-May 2024 RT/SB).
  - NBR on track to revise official exchange rate calculation methodology (end-June 2024 RT/SB).
  - RSF measures implemented as planned, including prototype climate change budget tagging on development expenditure, expanded quantitative climate risk analysis to include PPPs and SOEs, publication of individual risk analysis of SOEs and PPPs vulnerable to climate risks, and development of a local-level financing mechanism for disaster risk reduction and management.

### Outlook and key projections
- Growth projections and table excerpt (selected entries preserved as in source):
  - Macro baseline: growth projected to decelerate to 6.5 percent in 2025 before returning to 7.3 percent over the medium term.
  - Real GDP growth (percent): 8.2 6.2 8.2 6.6 6.6 7.0 6.5 7.3 6.8 7.3 7.2 7.3 7.3 7.3
- Inflation:
  - Inflation projected to stabilize at around 5 percent in 2024, the mid-point of the NBR’s 2-8 percent target band.
  - CPI, period average (percent): 13.9 14.5 14.0 6.0 4.9 5.0 5.1 5.0 5.0 5.0 5.0 5.0 5.0 5.0
  - CPI, end period (percent): 21.7 9.0 6.4 5.5 5.0 5.0 5.1 5.0 5.0 5.0 5.0 5.0 5.0 5.0
- External flows and reserves:
  - Current account deficit: 11.7 percent of GDP in 2023; expected to reach 12.1 percent of GDP in 2024.
  - Reserves projection: rise to US$2.05 billion in 2024, equivalent to 4.1 months of prospective imports, and stabilize around 4.5 months of imports in the medium term, excluding RSF disbursements.
  - Current account balance, incl grants (percent of GDP): -9.4 -11.5 -11.7 -11.8 -12.1 -10.2 -11.1 -10.0 -10.0 -9.1 -9.6 -7.7 -8.6 -7.6
  - Gross international reserves, excl. RSF (months of imports): 4.2 3.7 4.1 4.0 4.1 4.4 4.3 4.4 4.4 4.5 4.5 4.5 4.5 4.5
- Fiscal outlook and public debt:
  - Overall fiscal balance, incl. grants, policy lending (percent of GDP): -7.6 -7.3 -7.4 -6.8 -6.7 -5.3 -5.2 -3.4 -3.4 -3.0 -3.1 -3.0 -3.1 -3.0
  - Total public debt incl. guarantees (percent of GDP): 67.5 71.6 73.5 78.0 80.0 77.2 80.0 74.8 77.5 72.3 74.6 69.5 71.0 66.2

### Risks to the outlook
- Balance of risks remains tilted to the downside. Specific risks include:
  - Global commodity price volatility; continued geopolitical fragmentation; abrupt decline in trading partner growth and external tourism demand.
  - Monetary policy miscalibration in advanced economies.
  - Extreme weather events and climate-related shocks; Rwanda’s dominantly rain-fed agriculture sector is highly exposed to climate variability.
  - Red Sea trade disruptions and drought in Southern Africa affecting commodity import costs.
  - Adverse global financial market developments affecting external financing availability.
  - Uncertainties around committed UK MEDP grants (around GBP 50 million in FY 24/25 and 25/26).
  - Fallout from conflict with the Democratic Republic of Congo or border closures with Burundi affecting regional trade and aid flows.
  - Potential slowdown of reform momentum around the July 2024 elections until a new Cabinet is in place.
- Upside risks:
  - Materialization of the migrant-related portion of the MEDP grant would result in higher financing than assumed under the baseline.
  - Larger-than-expected climate financing from donors could boost reserves and investments in climate resilience.

### Policy recommendations and program modalities
- Overarching guidance:
  - Preserve macroeconomic and financial stability, ensure fiscal sustainability, and rebuild buffers.
  - Carefully calibrated fiscal stance to cushion effects of the 2023 May floods while supporting credible and balanced fiscal consolidation over the medium term.
- Fiscal policy:
  - Continue credible fiscal consolidation to bring debt down and rebuild buffers while financing urgent reconstruction needs.
  - Sustain reforms to rationalize expenditure and strengthen social safety nets.
- Monetary and exchange rate policy:
  - Monetary policy should anchor inflation around the center of the target band; an overall tight policy stance remains appropriate given risks and uncertainty.
  - Continued exchange rate flexibility to absorb external shocks and support current account adjustment.
- Structural and climate-related policies:
  - Sustain reform momentum under the RSF to enhance resilience to climate shocks and position Rwanda as a regional leader in climate initiatives.
  - Advance development of a credible pipeline of green projects to catalyze climate financing from development partners and the private sector.
  - Implement climate budget tagging, integrate climate risks into fiscal planning, and strengthen disaster risk management.
- Program support and reviews:
  - Staff supports completion of the third PCI/RSF reviews and the first SCF review based on authorities’ strong commitment to reforms, credible fiscal consolidation, and decisive monetary actions to curb inflationary pressures and rebuild external buffers.

### Near-term budget outlook and FY24/25 planning
- FY23/24 deficit projected at 6.7 percent of GDP.
- Tax revenues expected to bounce back in H2 FY23/24 due to recuperation of delayed payments on income and profit taxes.
- Implementation of rationalization measures will slow as revenues rebound, leading to an expected uptick in expenditure in H2 FY23/24.
- Under the MEDP agreement, Rwanda will receive an additional RWF 81 billion of budget support grants, to be equally split on recurrent and capital expenditures.
- FY24/25 overall fiscal deficit: 5.2 percent of GDP (compared to 5.3 percent expected at the time of the second review).
- Contingency plan: combination of additional expenditure envelope rationalization and new sources of grant and concessional financing.

### Medium-term fiscal path, DRM, and PFM reforms
- Medium-term budget framework: gradual reduction of the fiscal deficit from 5.2 to 3.1 percent of GDP in FY2024/25–FY2026/27.
- Total public debt expected to peak at 80 percent of GDP in 2024 (up from 78 percent at second review), before falling below the program debt anchor of 65 percent of GDP in 2030.
- Program debt anchor reiterated: 65 percent of GDP to be achieved by 2031.
- DRM and MTRS:
  - MTRS aims to increase tax-to-GDP ratio to 16.9 percent by FY25/26, with further increases planned for FY27/28.
  - Projected tax-to-GDP ratio under MTRS: 18.3 percent by FY27/28.
  - MTRS measures include: VAT on mobile phones, increases in fuel levy, gaming taxes, excise tax hikes, improved customs controls, broadening tax base, streamlining tax holidays, enhancing compliance, and reducing evasion.
  - IMF TA-supported actions: update VAT and CIT tax expenditure models, identify measures for comprehensive tax reform, strengthen outreach to major stakeholders (end-January 2025 RT).
- Expenditure rationalization:
  - Final spending rationalization strategy completed (end-May 2024 RT/SB).
  - Estimated savings: public wage freeze and phased recruitment plan RWF 5.7 billion; reduce cost of public travels, meetings and events and digitalize public services RWF 83.9 billion; rephase non-priority investment projects RWF 408.6 billion.
- PFM reforms: PFM digitalization and fiscal data strategy to improve data quality and transparency; accrual accounting migration and IFMIS rollout commitments.

### SOE governance, fiscal risks, and monitoring
- Legal and governance reforms:
  - Revised National Investment Policy incorporated key ownership principles; draft Privatization Law and Policy passed by Parliament and expected to be enacted by July 2024.
  - Draft Presidential Order to determine prerequisites for establishment of an SOE and management rules; current draft lacks provisions clarifying governance for mixed ownership and holding companies.
- SOE portfolio triage: out of 34 fully state-owned enterprises, 4 to be privatized, 1 to be liquidated, and 29 to be retained under state management (subject to Cabinet approval expected in April).
- Monitoring and stress testing:
  - Authorities committed to SOE health-checks for all SOEs and stress tests for at least two high-risk SOEs every quarter.
  - Completed stress tests: Bella Flowers and King Faisal hospital by end-2023; REG and WASAC by end-March 2024.
  - Plan to accelerate hiring of technical staff at MINECOFIN’s SOE department and train new staff with IMF TA; in-depth assessments of at least five SOEs and proposed mitigation measures by end-March 2025 RT.

### Monetary policy, exchange rate, and FX market
- Since February 2022, NBR increased policy interest rate by a total of 300 bps.
- At the February Monetary Policy Committee meeting, NBR maintained the Central Bank Rate at 7.5 percent.
- GMRA rollout on track for completion by end-December 2024 (end-December 2024 RT/SB).
- NBR revising official exchange rate calculation methodology to allow greater price discovery (end-June 2024 RT/SB); adopted methodology and parallel calculations started; progressive implementation expected from July 2024.
- FX market guidance:
  - Limit FX interventions to preventing disorderly adjustments and curbing excess volatility.
  - Transition from NBR’s FX rationing to a competitive auction once FX market equilibrium is restored and pressures on foreign reserves subside.

### Financial sector risks — large exposures and macroprudential options
- Findings:
  - Banks’ large exposures are significant and derive from a wide range of sectors (construction, manufacturing, financial activities, transportation, trade), posing systemic risks if these sectors downturn.
  - Common collateral: real estate and land (highly illiquid), underscoring need for conservative collateral valuation.
  - Staff stress test: default of the largest net exposure in each bank (zero recovery on unsecured part, full recovery of collateral) implies average Tier 1 capital decline of about 4.5 percentage points of Tier 1 capital ratio.
- Policy recommendations:
  - Continuous stress-testing of large exposures and close monitoring with conservative collateral valuation.
  - Gather granular exposure and loan-level data.
  - Consider tightening regulatory limits on large exposures and building additional capital buffers (e.g., Pillar 2 requirements).
  - Macroprudential options to address household credit growth: tighten LTV limits or introduce debt-service-to-income limits.

### RSF reforms, climate finance, and green project pipelines
- RSF implementation highlights:
  - Climate budget tagging prototype on development expenditure completed and climate budget statement published (third review RM6); tagging used in FY24/25 planning and to be extended to all expenditure.
  - Expanded quantitative climate risk analysis to include PPPs and SOEs and published individual risk analyses (third review RM7 and RM14).
  - Financing mechanism at local level for disaster risk reduction and management completed (third review RM13).
- Climate investment facilities and pipelines:
  - Ireme Invest: started lending operations; total value of green projects pipeline currently estimated at US$55 million in FY24/25.
  - Intego (managed by FONERWA): capitalization of EUR 46 million grant from KfW; Investment Committee submitted 14 projects totaling US$66.8 million for Board approval; FONERWA cleared additional 20 projects totaling about US$100 million.
  - Ireme Invest PPF capitalization projected at US$13.3 million in FY2024/25-FY2025/26; CF capitalization projected at US$108.6 million in FY2024/25-FY2025/26.
  - Total value of identified pipeline of green projects estimated at US$156 million in FY2024/25-FY2025/26.
  - Loans capped at 70 percent of total project value (companies must cover remaining 30 percent).
  - Two loan agreements for e-mobility and green hostels signed in 2024Q1.
- Innovative financing:
  - BRD issued a sustainability-linked bond (SLB) in October 2023, partially credit-enhanced via a US$10 million World Bank IDA loan; US$10 million collateral enabled BRD to raise close to US$25 million from capital markets.
- RSF impact on reserves and Fund exposure:
  - RSF disbursements expected to boost gross official reserves by an additional 0.7 month of imports cumulatively from start of RSF arrangement to end-2024.
  - Rwanda’s outstanding credit to the Fund: 220.66 percent of quota (as of March 31, 2024).
  - Will peak to 383.75 percent of quota in 2024 once the RSF and SCF arrangement are fully disbursed.
  - Peak amount described as 39.8 percent of gross international reserves, or 6.1 percent GDP.
  - Debt service remains modest at 0.7 percent of revenues excluding grants in 2029.
  - External and overall risk of debt distress assessed to be moderate.

### Gender, labor markets, and distributional findings
- Key labor statistics and gaps:
  - On average, women are paid less than men by 17 percent.
  - Married women earn an additional 11 percentage points less.
  - Female employment-to-population ratio is 11 percentage points lower than male ratio by the end of 2023.
  - Labor force participation rate (2023Q4): 67.4 percent for men and 53.5 percent for women.
  - Employment-to-population ratio (2023Q4): 57.6 percent for men and 46.5 percent for women.
  - Average weekly wages in 2022: RWF 6,533 for men and RWF 2,640 for women.
- Regression results (2022 LFS, IMF staff calculations — selected coefficients preserved):
  - Female coefficient (baseline): -0.167***.
  - Secondary education coefficient: 0.164***; Secondary x Female interaction: 0.012 (not significant in pooled).
  - Tertiary education coefficient: 0.929***; Tertiary x Female interaction: 0.062.
  - Agriculture coefficient: -0.202***; Agriculture x Female: 0.189***.
  - Public sector coefficient: 0.204**; Public x Female: 0.370***.
- Policy implications and recommendations:
  - Expand family-friendly workplace policies (flexible working arrangements, teleworking, compressed workweeks, parental leave, affordable childcare).
  - Continue investments in education and training to close wage disparities and improve employment prospects.
  - Enhance policies retaining female employees in formal sector jobs (e.g., more generous maternity leave and flexible work hours as implemented under Law N° 66/2018 of 30/08/2018).
- Data caveats:
  - LFS limitations: relatively small sample size, potential omission of informal employment segments, and survey methodological biases affecting wage differential estimates.

### Program monitoring, conditionality, and data/reporting requirements
- Program conditionality monitored semi-annually through QTs, PCs, RTs, standard continuous targets, and a Monetary Policy Consultation Clause (MPCC) with end-June and end-December test dates.
- New QTs and PCs set for end-June 2025.
- Proposed new RTs include:
  - In-depth forward-looking financial assessments of at least five SOEs with mitigation measures (proposed new end-March 2025 RT).
  - Expand coverage of Monetary and Financial Statistics to include insurance companies, Rwanda Development Bank, and private pension institutions; start publishing quarterly (proposed new end-March 2025 RT).
  - Submit draft amendments to the NBR Law to strengthen mandate, autonomy, and transparency (proposed new end-September 2025 RT).
- Reporting timelines for program data:
  - Weekly data: within seven days of the end of each week.
  - Monthly data: within five weeks of the end of each month.
  - Quarterly data: within eight weeks.

*Source: IMF Executive Summary and selected chapters (1rwaea2024001).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- The Rwandan economy continues robust growth despite a challenging external environment, repeated shocks, and ongoing fiscal consolidation.
- A 14-month Stand-by Credit Facility (SCF) arrangement, with access of 125 percent of quota, was approved in December 2023 to support short-term BOP needs and recalibration of near-term policy adjustment in response to climate-related shocks.
- The SCF is being implemented concurrently with a 3-year Policy Coordination Instrument (PCI) and Resilience and Sustainability Facility (RSF) arrangement, the latter with access of 150 percent of quota ($320 million), approved in December 2022.
- The PCI focuses on strengthening fiscal and monetary frameworks and building socioeconomic resilience; the RSF advances reforms in green public financial management (PFM), climate-resilient public investment management (PIM), climate-related risk management for financial institutions, and disaster risk reduction and management.

### Recent developments and program performance — Key findings
- Real GDP growth:
  - 2023 GDP growth: 8.2 percent year-on-year.
  - Unemployment rate: 16.8 percent overall; 20.1 percent for women; 20.3 percent for youth.
- Inflation:
  - Headline CPI: 4.2 percent in March 2024.
  - Core inflation: 5.8 percent in March 2024 (from 5.5 percent in February).
  - Instantaneous headline CPI: 6.5 percent in March (from 2.8 percent in February).
  - Instantaneous core inflation: 7.3 percent in March (from 3.9 percent in February).
  - Domestic food inflation: 27.8 percent in July 2023 to 2.5 percent in March 2024.
- External sector and reserves:
  - Rwandan franc depreciation: 18 percent year-on-year against the US dollar at end-2023.
  - International reserves: 4.1 months of prospective imports at end-2023.
  - Overperformance in reserves driven primarily by earlier-than-expected World Bank budget loan disbursements and other budget and project support in December 2023.
- Fiscal developments and reconstruction:
  - Fiscal deficit in H1 FY23/24 lower than anticipated due to lower expenditure.
  - Post-flood reconstruction spending: RWF 36.8 billion (0.2 percent of 2023/24 GDP in H1 FY23/24).
  - Net lending 0.3 percent of GDP lower than expected at the second review.
- Financial sector:
  - Banking sector by Q4 2023: profitable, well-capitalized, significant growth in deposits and loans (especially household loans).
  - Microfinance sector: strong profitability and robust capitalization; loan growth surpassed deposit growth.
  - Moderate and generally stable NPLs following a spike during 2020–21.
- Program implementation status:
  - All end-December 2023 PCI quantitative targets / SCF performance criteria, all PCI continuous targets / SCF continuous performance criteria, and all standard continuous targets were met.
  - 3-month average headline inflation of 8.9 percent came within the inner-bound values (6±3 percent) of the Monetary Policy Consultation Band for end-December 2023.
  - Conditionality met: spending rationalization strategy (end-May 2024 RT/SB) and dynamic social registry (end-May 2024 RT/SB).
  - NBR on track to revise official exchange rate calculation methodology (end-June 2024 RT/SB).
  - RSF measures implemented as planned, including prototype climate change budget tagging on development expenditure, expanded quantitative climate risk analysis to include PPPs and SOEs, publication of individual risk analysis of SOEs and PPPs vulnerable to climate risks, and development of a local-level financing mechanism for disaster risk reduction and management.

### Outlook and key projections
- Growth:
  - Macro baseline: growth projected to decelerate to 6.5 percent in 2025 before returning to 7.3 percent over the medium term.
  - Table excerpt (selected entries preserved as in source):
    - Real GDP growth (percent): 8.2 6.2 8.2 6.6 6.6 7.0 6.5 7.3 6.8 7.3 7.2 7.3 7.3 7.3
- Inflation:
  - Inflation projected to stabilize at around 5 percent in 2024, the mid-point of the NBR’s 2-8 percent target band.
  - CPI, period average (percent): 13.9 14.5 14.0 6.0 4.9 5.0 5.1 5.0 5.0 5.0 5.0 5.0 5.0 5.0
  - CPI, end period (percent): 21.7 9.0 6.4 5.5 5.0 5.0 5.1 5.0 5.0 5.0 5.0 5.0 5.0 5.0
- Current account and reserves:
  - Current account deficit: 11.7 percent of GDP in 2023; expected to reach 12.1 percent of GDP in 2024 (from 11.7 percent in 2023).
  - Reserves projection: rise to US$2.05 billion in 2024, equivalent to 4.1 months of prospective imports, and stabilize around 4.5 months of imports in the medium term, excluding RSF disbursements.
  - Current account balance, incl grants (percent of GDP): -9.4 -11.5 -11.7 -11.8 -12.1 -10.2 -11.1 -10.0 -10.0 -9.1 -9.6 -7.7 -8.6 -7.6
  - Gross international reserves, excl. RSF (months of imports): 4.2 3.7 4.1 4.0 4.1 4.4 4.3 4.4 4.4 4.5 4.5 4.5 4.5 4.5
- Fiscal outlook:
  - Overall fiscal balance, incl. grants, policy lending (percent of GDP): -7.6 -7.3 -7.4 -6.8 -6.7 -5.3 -5.2 -3.4 -3.4 -3.0 -3.1 -3.0 -3.1 -3.0
  - Total public debt incl. guarantees (percent of GDP): 67.5 71.6 73.5 78.0 80.0 77.2 80.0 74.8 77.5 72.3 74.6 69.5 71.0 66.2

### Risks to the outlook
- Balance of risks remains tilted to the downside (Annex I). Specific risks include:
  - Global commodity price volatility; continued geopolitical fragmentation; abrupt decline in trading partner growth and external tourism demand.
  - Monetary policy miscalibration in advanced economies.
  - Extreme weather events and climate-related shocks; Rwanda’s dominantly rain-fed agriculture sector is highly exposed to climate variability.
  - Red Sea trade disruptions and drought in Southern Africa affecting commodity import costs.
  - Adverse global financial market developments affecting external financing availability.
  - Uncertainties around committed UK MEDP grants (around GBP 50 million in FY 24/25 and 25/26).
  - Fallout from conflict with the Democratic Republic of Congo or border closures with Burundi affecting regional trade and aid flows.
  - Potential slowdown of reform momentum around the July 2024 elections until a new Cabinet is in place.
- Upside risks:
  - Materialization of the migrant-related portion of the MEDP grant would result in higher financing than assumed under the baseline.
  - Larger-than-expected climate financing from donors could boost reserves and investments in climate resilience.

### Policy recommendations and program modalities
- Overarching policy guidance:
  - Preserve macroeconomic and financial stability, ensure fiscal sustainability, and rebuild buffers.
  - Carefully calibrated fiscal stance to cushion effects of the 2023 May floods while supporting credible and balanced fiscal consolidation over the medium term.
- Fiscal policy:
  - Continue credible fiscal consolidation to bring debt down and rebuild buffers while financing urgent reconstruction needs.
  - Sustain reforms to rationalize expenditure and strengthen social safety nets.
- Monetary and exchange rate policy:
  - Monetary policy should anchor inflation around the center of the target band; an overall tight policy stance remains appropriate given risks and uncertainty.
  - Continued exchange rate flexibility to absorb external shocks and support current account adjustment.
- Structural and climate-related policies:
  - Sustain reform momentum under the RSF to enhance resilience to climate shocks and position Rwanda as a regional leader in climate initiatives.
  - Advance development of a credible pipeline of green projects to catalyze climate financing from development partners and the private sector.
  - Implement climate budget tagging, integrate climate risks into fiscal planning, and strengthen disaster risk management.
- Program support and reviews:
  - Staff supports completion of the third PCI/RSF reviews and the first SCF review based on authorities’ strong commitment to reforms, credible fiscal consolidation, and decisive monetary actions to curb inflationary pressures and rebuild external buffers.

*Source: IMF Executive Summary (1rwaea2024001 - EXECUTIVE SUMMARY).*

### 10.      The near-term budget outlook remains consistent with the fiscal consolidation path

### 10.      The near-term budget outlook remains consistent with the fiscal consolidation path

### Fiscal outlook and near-term projections
- FY23/24 deficit is projected at 6.7 percent of GDP.
- Tax revenues are expected to bounce back in H2 FY23/24 due to the recuperation of the delayed payments on income and profit taxes.
- Implementation of rationalization measures will slow as revenues rebound, leading to an expected uptick in expenditure in H2 FY23/24.
- Under the MEDP agreement, Rwanda will receive an additional RWF 81 billion of budget support grants, to be equally split on recurrent and capital expenditures.

### FY24/25 baseline and contingency planning
- Authorities proposed a slightly lower deficit for FY24/25 relative to the second review.
- Baseline projections exclude the uncertain migrant-related portion of the MEDP grant, while retaining the budget support portion for which the UK government provided public assurances.
- Resulting FY24/25 overall fiscal deficit: 5.2 percent of GDP (compared to 5.3 percent expected at the time of the second review).
- Contingency plan to address potential shortfalls: combination of additional expenditure envelope rationalization and new sources of grant and concessional financing.

### Medium-term fiscal path and debt outlook
- Medium-term budget framework envisages a gradual reduction of the fiscal deficit from 5.2 to 3.1 percent of GDP in FY2024/25–FY2026/27.
- Adjustment requires mobilizing domestic revenues and considerable expenditure adjustment while safeguarding essential spending (investment and social assistance).
- Potential measures mentioned: curbing new hires, further reducing non-essential recurrent spending, halting underperforming domestically financed projects.
- Total public debt is now expected to peak at 80 percent of GDP in 2024 (up from 78 percent at the time of the second reviews), before falling below the program debt anchor of 65 percent of GDP in 2030.
- Program debt anchor reiterated: 65 percent of GDP to be achieved by 2031.
- If shocks to concessional financing materialize, fiscal policy will remain guided by the medium-term fiscal consolidation path and the program debt anchor.

### Domestic revenue mobilization (DRM) and expenditure rationalization
- DRM: Government committed to the Medium-Term Revenue Strategy (MTRS) aiming to increase the tax-to-GDP ratio to 16.9 percent by FY25/26, with further increases planned for FY27/28.
- MTRS measures include: VAT on mobile phones, increases in fuel levy, gaming taxes, excise tax hikes, improved customs controls, broadening the tax base (including streamlining tax holidays and expenditures), enhancing compliance, and reducing evasion.
- Projected tax-to-GDP ratio under MTRS: 18.3 percent by FY27/28.
- IMF TA-supported actions: update VAT and CIT tax expenditure models, identify measures for the comprehensive tax reform package, strengthen outreach to major stakeholders (end-January 2025 RT).
- Expenditure rationalization: final spending rationalization strategy completed to underpin medium-term projections (end-May 2024 RT/SB).
- Cost-savings and efficiency measures: rationalization of subsidies (particularly export promotion), digital delivery of public services (drawing on World Bank PER and IMF PIMA recommendations).
- Planned PFM reforms: PFM digitalization and fiscal data strategy to improve data quality, ensure fiscal transparency, and support data-driven policies.

### Strengthening fiscal risk management and transparency (SOEs)
- Legal framework review: revised National Investment Policy incorporated key ownership principles; draft Privatization Law and Policy passed by Parliament and expected to be enacted by July 2024.
- Draft Presidential Order will determine prerequisites for establishment of an SOE and management rules; current draft lacks provisions clarifying governance for mixed ownership and holding companies.
- SOE corporate governance reforms: formalize and enforce Board selection criteria, accountability frameworks, remuneration, strengthen internal audit functions, introduce better risk management framework, leverage IMF TA to align with global standards.
- Managing SOE fiscal risks: decision to create then dissolve MININVEST disrupted SOE monitoring; authorities committed to SOE health-checks for all SOEs and stress tests for at least two high-risk SOEs every quarter.
- Completed stress tests: Bella Flowers and King Faisal hospital by end-2023; REG and WASAC by end-March 2024.
- Plan to accelerate hiring of technical staff at MINECOFIN’s SOE department; with IMF TA, train new staff on health check and stress test tools; in-depth forward-looking assessments of at least five SOEs including mitigation measures proposed by end-March 2025 RT.
- Triage exercise: out of 34 fully state-owned enterprises, 4 to be privatized, 1 to be liquidated, and 29 to be retained under state management (subject to Cabinet approval expected in April).

### Monetary policy, exchange rate, and FX market
- Since February 2022, NBR increased policy interest rate by a total of 300 bps.
- At the February Monetary Policy Committee meeting, NBR maintained the Central Bank Rate at 7.5 percent.
- Decision aimed to uphold a tight policy stance for external adjustment before considering gradual easing mid-year, given exchange rate pass-through and supply shock uncertainties.
- NBR continues to strengthen forecast and modelling capabilities with IMF TA and enhance communication of data-driven decisions.
- GMRA rollout: on track for completion by end-December 2024 (end-December 2024 RT/SB).
- More REER adjustment needed: real effective exchange rate depreciation in 2023 was less than program expectations despite deeper-than-expected franc nominal depreciation against the US dollar; program builds on continued significant average nominal depreciation in 2024 to yield larger REER depreciation in 2024.
- NBR revising official exchange rate calculation methodology to allow greater price discovery (end-June 2024 RT/SB); timeline for gradual transition to new methodology yet to be agreed.
- FX market recommendations: (i) limit FX interventions to preventing disorderly adjustments and curbing excess volatility; (ii) transition from NBR’s FX rationing to a competitive auction once FX market equilibrium is restored and pressures on foreign reserves subside.

### Safeguards, financial sector performance, and risks
- February 2024 safeguards assessment: NBR has a broadly sound safeguards framework and accountability mechanisms and has maintained autonomy in practice.
- Further measures needed: (i) ensure Board and Audit and Risk Committee composition conducive to independent oversight; (ii) align NBR Law with leading practices for mandate, financial and personal autonomy, and transparency and accountability; (iii) strengthen capacity of internal audit.
- Authorities plan to submit draft amendments to the NBR Law to Cabinet, in consultation with IMF staff (proposed new end-September 2025 RT).
- Banking sector credit growth: annual growth of banking sector loan stock accelerated to more than 19 percent in 2023 (from 14 percent in 2022); consumer loans displayed the fastest growth.
- Microfinance sector loans grew at 35 percent.
- As of end-2023, banking sector remains profitable and well-capitalized; bank loans and deposits growing at similar rates.
- Microfinance sector: strong profitability and robust capitalization in 2023 while loan growth well exceeded deposit growth.
- NPLs: both sectors display broadly stable NPL levels following the COVID‑related spike in 2020–21.

### Large exposures, monitoring, and policy options
- Banks’ large exposures are significant and derive from a wide range of sectors (construction, manufacturing, financial activities, transportation, trade), posing systemic risks if these sectors downturn.
- Regulatory limit for exposures to a single counterparty: 25 percent of Tier 1 capital; banks may extend up to 50 percent if adequately secured by high quality collateral or qualifying guarantees.
- Common collateral: real estate and land (highly illiquid), underscoring need for conservative collateral valuation.
- Staff stress test: default of the largest net exposure in each bank (zero recovery on unsecured part, full recovery of collateral) implies average Tier 1 capital decline of about 4.5 percentage points of Tier 1 capital ratio.
- Multiple large-exposure defaults or lower collateral recovery would further increase losses.
- Recommendations: close monitoring and stress testing of large exposures with conservative collateral valuation; gather granular exposure and loan-level data; consider tightening regulatory limits on large exposures and building additional capital buffers (e.g., Pillar 2 requirements).
- Macroprudential options to address household credit growth: tighten LTV limits or introduce debt-service-to-income limits.

### Climate-related financial risks and structural policies
- NBR’s guidelines on management of climate-related and environmental financial risks went into effect in late November 2023, with a phased-in implementation timeline focused initially on capacity building, data collection, and initial self-assessment by financial institutions.
- Management of climate-related financial risks remains nascent; institutions at early stages of building internal capacity.
- Structural policies: socioeconomic reforms under the National Strategy for Transformation emphasize people-centric policies and human capital development.
- Dynamic social registry rolled out in February (end-May 2024 RT/SB) to improve targeting and efficiency of social sector programs and support quality of household welfare data.

*Source: 1rwaea2024001 - 10.      The near-term budget outlook remains consistent with the fiscal consolidation path*

### 25.      Progress on RSF reforms continues to be strong with tangible results on

### 1rwaea2024001 - 25.      Progress on RSF reforms continues to be strong with tangible results on

### Progress on RSF reforms and implementation
- Third review actions completed include climate budget tagging on development expenditure and releasing a climate budget statement based on initial tagging results (third review RM6).
- The authorities utilized the climate budget tagging prototype during the planning of the FY24/25 budget and plan to extend it to cover all expenditure.
- Tagging enables: review of activity performance from a spending perspective; data-informed allocation decisions for new resources; assessment of needs for reallocation from poorer performing or non-performing climate change activities to priority climate activities.
- Once fully implemented, tagging will enable monitoring during both budget preparation and execution, enhancing transparency for the public and development partners.

### Integrating climate risks into financial planning
- Expansion of quantitative climate risk analysis to include PPPs and SOEs vulnerable to climate-related risk completed (third review RM7), including individual risk analysis (third review RM14).
- The Fiscal Risk Statement for FY 2024/25 includes:
  - A qualitative assessment of climate risk spillovers and possible mitigating measures for ten individual SOEs across the seven most climate vulnerable sectors (Box 2).
  - More in-depth quantitative assessment of possible climate impacts for REG and WASAC.
  - Discussion of how investments in road, bridge, energy, and water infrastructure help reduce impacts of negative climate events.

### Strengthening disaster reduction and management
- A financing mechanism at the local level to mobilize resources for disaster risk reduction and management was completed (third review RM13).
- With IMF TA support, authorities adopted an action plan focusing on:
  - Mobilizing additional resources while respecting fiscal sustainability.
  - Freeing up resources by improving efficiency to create fiscal space for disaster risk response and management.
- Specific actions include mobilizing additional grant financing for adaptation projects; enhancing ownership, transparency, and objectivity of disaster expenditures; minimizing disaster costs; optimizing disaster response efficiency; and enhancing disaster risk management coordination and knowledge.

### Climate investment facilities: capitalization and pipelines
- Authorities accelerating development of a credible pipeline of green projects leveraging COP28 momentum.
- Ireme Invest:
  - Started lending operations with two officially launched projects (e-mobility and green hostels).
  - Total value of Ireme’s green projects pipeline currently estimated at US$55 million in FY24/25.
- Intego (managed by FONERWA):
  - Capitalization of EUR 46 million grant from KfW.
  - Investment Committee submitted 14 projects totaling US$66.8 million for Board approval; implementation expected to start in FY24/25 and last over 3 years.
  - FONERWA cleared an additional 20 projects totaling about US$100 million, requiring further capitalization.
- Ireme Invest facilities and capitalization projections:
  - Project Preparatory Facility (PPF) capitalization projected at US$13.3 million in FY2024/25-FY2025/26; launched call for proposals in February and received over 400 project applications in one month.
  - Credit Facility (CF) capitalization projected at US$108.6 million in FY2024/25-FY2025/26.
  - Total value of identified pipeline of green projects estimated at US$156 million in FY2024/25-FY2025/26.
  - Loans capped at 70 percent of total project value (companies must cover remaining 30 percent).
  - Two loan agreements for e-mobility and green hostels signed in 2024Q1.

### Innovative financing and leverage
- BRD issued a sustainability-linked bond (SLB) in October 2023:
  - Partially credit-enhanced via a US$10 million World Bank IDA loan, in the form of a collateralized guarantee.
  - The Government of Rwanda passed on proceeds of the concessional IDA loan to BRD by purchasing Rwanda government securities and placing them in an escrow account at the central bank as collateral, pledged to investors of the SLB.
  - The US$10 million collateral enabled BRD to raise close to US$25 million from capital markets.

### Gender equality and labor market outcomes
- Rwanda ranked among the highest in global gender equality rankings; gaps remain in labor force participation, occupational and industry segregation.
- Education completion:
  - Completion rates of primary and secondary education are higher for females; tertiary completion remains higher for males.
- Labor market gaps and statistics:
  - Women’s likelihood of labor force participation is lower than men’s by 8 percentage points; this gap narrows with secondary or tertiary education by 2 and 9 percentage points, respectively.
  - Likelihood of employment is 2.4 percentage points higher for women compared to men, but decreases for those with caregiving responsibilities.
  - On average, women are paid less than men by 17 percent.
  - Women’s wages are relatively higher compared with men in the public sector by 37 percent and in agriculture by 19 percent.
  - Female employment-to-population ratio is 11 percentage points lower than male ratio by the end of 2023.
- Policy implication: A more comprehensive parental leave policy, flexible work arrangements, and investments in education and training could increase female employment-to-population ratio and lessen the gender wage gap.

### Program modalities, monitoring, and reform milestones
- Program conditionality under the PCI/SCF proposed, monitored semi-annually through QTs, PCs, RTs, standard continuous targets, and a Monetary Policy Consultation Clause (MPCC) with end-June and end-December test dates.
- New QTs and PCs set for end-June 2025.
- Three new proposed RTs:
  - Conduct in-depth forward-looking financial assessments of at least five SOEs, including identification of credible mitigation measures (proposed new end-March 2025 RT).
  - Expand coverage of Monetary and Financial Statistics to include insurance companies, Rwanda Development Bank, and private pension institutions as part of Other Financial Corporations Survey; start publishing quarterly (proposed new end-March 2025 RT).
  - Submit to Cabinet draft amendments to the NBR Law to strengthen provisions for mandate, financial and personal autonomy, and transparency and accountability in line with safeguards assessment recommendations (proposed new end-September 2025 RT).

### Fiscal space, reserves, and debt sustainability
- RSF disbursements expected to:
  - Create fiscal space to support climate adaptation and mitigation priorities (low-carbon transport, climate-resilient infrastructure and energy access, resilient urban landscapes, sustainable water systems, agriculture, forestry, conservation).
  - Augment Rwanda’s international reserves and improve investor confidence.
  - Help boost Rwanda’s gross official reserves by an additional 0.7 month of imports cumulatively from the start of the RSF arrangement to end-2024.
- Rwanda’s outstanding credit to the Fund:
  - 220.66 percent of quota (as of March 31, 2024).
  - Will peak to 383.75 percent of quota in 2024 once the RSF and SCF arrangement are fully disbursed.
  - Peak amount described as 39.8 percent of gross international reserves, or 6.1 percent GDP.
  - Debt service remains modest at 0.7 percent of revenues excluding grants in 2029.
- External and overall risk of debt distress assessed to be moderate.

### Financing assurances and risks
- Program fully financed with firm commitments over the next 12 months and good prospects for the remainder of the program.
- Financing assurances mostly in the form of concessional grants from the World Bank, UNICEF, Global Fund, bilateral development partners, and concessional loans from the World Bank, AfDB, and other multilateral and bilateral partners.
- Staff encouraged continued close engagement with donors and leveraging the catalytic role of the RSF to secure additional climate-related financing.
- Authorities developed contingency plans to address grant shortfalls through expenditure rationalization and new sources of grant and concessional financing.

### Staff appraisal and policy recommendations
- Economic outlook:
  - Real GDP growth in 2023 surpassed expectations due to services, construction, and post-flood recovery in food crop production.
  - Inflation outlook improved due to a slowdown in food prices and core inflation.
  - Current account deficit widened somewhat more than expected in 2023; international reserves remain adequate.
- Performance under PCI/SCF:
  - All end-December 2023 quantitative targets under the PCI and quantitative performance criteria under the SCF were met.
  - A dynamic social registry was rolled out.
  - A spending rationalization strategy was prepared as part of the FY24/25 budget.
- Policy priorities and recommendations:
  - Further advance fiscal consolidation centered on domestic revenue mobilization, expenditure rationalization, and mitigating fiscal risks linked to SOEs to maintain development and social spending without jeopardizing fiscal stability.
  - Continue proactive, forward-looking, and data-driven monetary policy; a gradual easing of the monetary policy stance starting mid-year would be appropriate if supported by data and risk evolution.
  - Prioritize safeguarding essential spending, in particular on development investments and social assistance, and prevent budget overruns.
  - Continue close donor engagement and leverage RSF catalytic role to secure additional climate financing.

*Source: 1rwaea2024001.*

### 38.      Vigilant oversight of financial stability risks, especially those related to large exposures

### 38. Vigilant oversight of financial stability risks, especially those related to large exposures

### Financial stability risks and policy recommendations
- Findings
  - The prevalence of large exposures is a structural feature of Rwanda’s banking system and is more pronounced than in other countries.
  - Collateralization offers a buffer, but monitoring by the NBR is important going forward.
  - Interconnection between banks and the government through guarantees creates a bank-sovereign nexus, potentially exposing the government’s balance sheet to significant risks.
  - Rapid credit expansion, particularly in the household sector, has the potential to lead to deterioration in asset quality and consumer over-leveraging.
- Policy recommendations
  - Continuous stress-testing of large exposures is crucial.
  - Build additional capital buffers for banks to strengthen resilience of the banking system.
  - Regulator should consider proactive measures to limit household over-leveraging, such as tightening of LTV limits or introduction of debt-service-to-income limits.

### Climate resilience and RSF progress
- Findings and measures
  - Sustained reform momentum under the RSF will continue enhancing the economy's resilience to climate shocks and position Rwanda as a regional leader in climate initiatives.
  - Tagging of climate related capital expenditures was completed and the results published in the FY24/25 budget.
  - Quantitative climate risk analysis was expanded to include PPPs and SOEs vulnerable to climate-related risk, including individual risk analysis.
  - A financing mechanism was developed to enhance the ability of local governments to mobilize resources to finance and implement disaster risk reduction and management strategy.
  - Authorities are accelerating efforts to develop a credible pipeline of green projects, leveraging the RSF catalytic effect.

### Fund support, program reviews, and disbursements supported by staff
- Staff support
  - Staff supports the completion of the third PCI/RSF reviews and the first SCF review.
  - The authorities’ strong commitment to reforms, aided by credible fiscal consolidation and decisive monetary action, warrants continued Fund support.
- Disbursements supported by staff
  - Staff supports a disbursement totaling SDR 57.50116 million under the RSF and SDR 66.75 million under the SCF.

### Recent macro-financial indicators and program context (selected highlights from figures/tables)
- Economic activity and inflation
  - Economic activities remained strong in 2023 driven by services, construction and transport, and robust post-flood recovery in food crop production.
  - Inflation decelerated sharply, reaching the NBR’s inflation target in January.
- Fiscal developments
  - Deficit is coming down in recent years.
  - Total revenues have declined on account of lower grants, while expenditures remain contained amid external funding squeezes.
- Monetary and financial sector
  - After a tightening cycle, rates have been on hold since August 2023; real interest rates remain low, contributing to credit growth.
  - Growing demand for reverse repos from the Central Bank.
  - Loans under Watch category have continued to decline since the spike following COVID-19.
  - NPL levels remained broadly stable recently, following the COVID-related spike during 2020-2021.
  - Large exposures of banks have been growing in the past few years.
- External sector
  - Trade deficit widened, reflecting strong demand for food and capital goods imports.
  - REER appreciated on the back of depreciating NEER and lowering inflation towards end-2023.
  - FX market pressures drove nominal exchange rate depreciation, while international reserves held steady following higher disbursements in official financing support later in 2023.

### Gender gaps in labor market outcomes (Annex II — key empirical findings)
- Aggregate and survey sample facts
  - Labor force participation rate (LFPR) in 2023Q4: 67.4 percent for men and 53.5 percent for women.
  - Employment-to-population ratio (EPR) in 2023Q4: 57.6 percent for men and 46.5 percent for women.
  - Average weekly wages in 2022: RWF 6,533 for men and RWF 2,640 for women.
  - In 2017, 42.8 percent of the working age population were either employed (29.7 percent) or actively looking for jobs (13.1 percent).
  - Regional comparison: EAC average LFPR and EPR gaps stand at 3.5 and 4.6, compared to 11.4 for both in Rwanda.
- Survey sample and measurement
  - The 2022 Labor Force Survey (LFS) sample was restricted from 70,424 to 41,491 individuals aged 15–65.
  - Of 41,491, about 60 percent report being employed during the last 7 days; of those employed only about half report receiving wages or salaries in cash or in kind.
- Empirical patterns
  - For the surveyed population, 65 percent of men in working age participate in the labor force, while the corresponding number for women is 50 percent.
  - Of those in the labor force, 82 percent of men are employed, with the corresponding number for women at 76 percent.
  - Average weekly wages for women are almost 45 percent lower than for men.
  - Determinants: marriage reduces women’s likelihood of participating in the labor force and being employed; caregiving responsibilities and higher education lower their likelihood of employment further.
  - Single women with no dependents and with primary or no education living in rural areas are less likely to participate in the labor force but more likely to be employed once in the labor force.
  - Caring for a dependent, having secondary or tertiary education, and living in urban areas increase women’s likelihood of participating in the labor market, but marriage reverses that pattern relative to men.

*Source: 1rwaea2024001 - IMF staff report content unit.*

### 9.      A gender wage gap persists even after controlling for individual characteristics. On

### 1rwaea2024001 - 9.      A gender wage gap persists even after controlling for individual characteristics. On

### Key findings
- On average, women are paid less than men by 17 percent.
- Married women earn an additional 11 percentage points less.
- Secondary and tertiary education is associated with much higher wages for both genders, with a slightly higher but statistically not significant wage premium for women.
- Women are paid more than men in agriculture by 19 percentage points.
- Women are paid more than men in the public sector by 37 percentage points.
- Caring for a dependent does not appear to be associated with lower female wages, attributed to recent policy changes offering more flexible work arrangements and longer maternity leave.

### Statistical estimates and regression results
- Source of estimates: 2022 LFS, and IMF staff calculations.
- Wage regressions (log wages) summary highlights:
  - Female coefficient (baseline): -0.167*** (column (1)).
  - Secondary education coefficient: 0.164***; Secondary x Female interaction in pooled sample: 0.012 (not significant in pooled, larger and significant in older cohort).
  - Tertiary education coefficient: 0.929***; Tertiary x Female interaction in pooled sample: 0.062.
  - Agriculture coefficient: -0.202***; Agriculture x Female: 0.189***.
  - Public sector coefficient: 0.204**; Public x Female: 0.370***.
- Panel distinctions by age:
  - Younger workers (under 30): female wage gap on average 10 percent less than men in same age group.
  - Older workers (30 and above): female wage gap on average 19 percent less than men in same age group.
  - Higher education wage premium for women (15-19 percentage points) is driven predominantly by older female workers.

### Labor force participation and employment patterns
- Secondary education is associated with lower probability of labor force participation across both genders, more so for men.
- Secondary education is associated with lower probability of employment across both genders, however more so for women—interpreted as highly educated women being more motivated to participate but facing lower employment opportunities.
- Marriage is a major factor influencing women’s labor market decisions and wages (large negative interaction effects with female dummy in participation and employment regressions).

### Policy implications and recommendations
- Three key messages:
  - There continues to be a sizable gender gap in labor force participation, employment and wages in Rwanda, which appear to be closing for younger female workers.
  - Marriage appears to be the most important factor influencing women’s labor market decisions and wages.
  - Investments in education and training appear to have paid off in terms of closing the wage disparities between men and women, but inequities in women’s employment prospects remain.
- Suggested policy directions:
  - Expand family-friendly workplace policies tailored to Rwanda’s circumstances, including flexible working arrangements, teleworking options, compressed workweeks, parental leave, and access to affordable childcare services and early education programs.
  - Continue investments in education and training to sustain and extend gains in closing wage disparities.
  - Further enhancements to policies retaining female employees in formal sector jobs (examples include more generous maternity leave and flexible work hours as implemented under the Law regulating labor in Rwanda (N° 66/2018 of 30/08/2018)).

### Potential macroeconomic gains
- Closing gender gaps could have positive effects on growth; evidence cited (Ganum and Can (2024)) links high gender inequality with lower per capita growth rates.
- Increasing female employment-to-population ratio (currently 11 percentage points lower than male ratio by the end of 2023) could lessen gender inequality and foster higher growth.

### Data caveats and limitations
- Caution in interpreting regression results due to limitations in the LFS data:
  - While LFS is nationally representative and sample weights are applied, its relatively small sample size can skew results or render them statistically insignificant.
  - The LFS may omit significant segments of the workforce engaged in informal employment or family agriculture, where gender pay disparities may be more pronounced.
  - Survey methodological biases, such as self-reporting, may further distort accuracy of wage differentials.

*Source: 2022 LFS and IMF staff calculations, as presented in the referenced IMF chapter.*

### 8.      We foresee a temporary softening of economic growth driven by recalibration of

### 8. We foresee a temporary softening of economic growth driven by recalibration of policies

### Macroeconomic outlook and external sector
- GDP growth projections:
  - 8.2 percent in 2023
  - 6.6 percent in 2024
  - 6.5 percent in 2025
- Demand and supply drivers:
  - Private consumption and investment expected to be main growth drivers in the medium term as fiscal consolidation ensues.
  - Net exports expected to improve due to real effective exchange rate depreciation.
  - Services sector to continue robust expansion; agricultural sector to continue recovering.
- Inflation:
  - Projected to stabilize at around 5 percent in 2024 (mid-point of the NBR’s 2-8 percent target band).
  - Projection conditional on continued easing of food prices, extent of exchange rate depreciation passthrough, and no further escalation of global geopolitical risks.
- Current account and reserves:
  - Current account deficit expected to reach 12.1 percent of GDP in 2024 (11.7 percent in 2023).
  - Flood reconstruction and Bugesera-related project activity to add to imports in 2024; policy adjustment to moderate aggregate demand will reduce import growth.
  - Reserves projected to rebound to US$2.05 billion in 2024, equivalent to 4.1 months of prospective imports, and stabilize around 4.3 months of imports from 2025 onward, excluding RSF disbursements.
  - Medium-term outlook: concessional financing expected to decline and be partially offset by increased private flows, mainly FDI.
- Downside risks highlighted:
  - Geopolitical fragmentation, spikes in global energy/food/fertilizer prices, steeper decline in trading partners’ growth.
  - Tight global financial conditions affecting external financing availability and affordability.
  - Legal uncertainties around committed UK grants under the Migration and Economic Development Partnership (MEDP) could create budget pressures and lower FX inflows if they do not materialize.
  - High exposure of dominantly rain-fed agriculture to climate variability.

### Fiscal stance, reconstruction financing, and near-term budget
- Flood reconstruction and fiscal stance:
  - Total reconstruction spending anticipated at around 3 percent of GDP over the next five years.
  - Plan to meet two-thirds of flood-related expenditure by reprioritizing spending within the existing fiscal envelope in FY24/25.
- Specific financing for reconstruction:
  - Predominantly financed by US$155 million World Bank project financing (supported by repurposing of unused project allocations, Crisis Response Window, and accelerating the disaster risk management component of the Volcano Community Project).
  - SCF funds portion allocated for budget support creates fiscal space.
  - Expected US$150 million loan from the European Investment Bank to add to medium-term financing of disaster-resilient infrastructure investment.
- Fiscal balances and grants:
  - FY23/24 deficit projected at 6.7 percent of GDP (slightly lower than expected in December 2023).
  - Tax revenues expected to bounce back in the second half of FY23/24 due to recuperation of delayed payments on income and profit taxes.
  - Under MEDP, Rwanda will receive an additional RWF 81 billion of UK grants, equally split on recurrent and capital expenditures.

### Fiscal consolidation, revenue strategy, and tax measures
- Fiscal consolidation trajectory:
  - Medium-term budget framework envisages gradual reduction of the fiscal deficit from 5.3 to 3.0 percent of GDP in FY24/25–FY26/27.
  - Convergence to a 65 percent of GDP debt anchor achieved by 2031; Rwanda expected to remain at moderate risk of debt distress with buffers to absorb shocks.
- Contingency and debt management:
  - Contingency plan includes seeking alternative grant and concessional financing if shocks to concessional financing materialize; if unsuccessful, cut spending in recurrent and capital items by the appropriate amount.
  - Debt strategy prioritizes concessional resources, including climate finance; additional highly concessional projects prioritized over domestically or commercially financed projects when feasible.
  - MEDP projected at GBP 50 million in each of FY24/25 and FY25/26 is included in trajectory.
- Medium-Term Revenue Strategy (MTRS) targets and reforms:
  - MTRS-1 (approved November 29, 2023) includes revenue-generating tax policy measures and tax administration improvements to achieve MTRS domestic revenue targets.
    - Tax policy measures include: VAT on mobile phones and selected telecommunication equipment; increases in the fuel levy and registration fees for imported vehicles; gaming taxes; excise tax increases on beer, tobacco, and telecommunication services; and increased mineral taxation.
    - Tax administration measures include: controls to stop customs over-valuation; introduction of custom scanners; integration of invoice systems of the hospitality sector with the RRA tax system.
  - MTRS successor (MTRS-2) objective:
    - Projected to raise tax-to-GDP ratio to 18.3 percent by FY27/28 (building on MTRS-1 which targets tax-to-GDP ratio of 16.9 percent by end of the first phase in FY25/26).
    - Will rely on broadening the domestic tax base by streamlining tax holidays and tax expenditures (end-January 2025 RT). Updates to VAT and CIT tax expenditure models with IMF TA; aim to legislate required changes within the program period.
- Manufacture and Build to Recovery Program (MBRP):
  - Committed not to extend MBRP beyond end of December 2024.
  - Program has attracted 138 projects with total investment of US$2.38 billion (55 projects in manufacturing; 49 projects in construction, including 46,000 housing units; and 34 projects in agro-processing).
  - Expected creation of over 44,000 jobs.
  - 94 projects have received tax incentives amounting to RWF 23.7 billion.
  - No new tax exemptions under the scheme beyond 2024.
- Revenue administration reforms (RRA):
  - New Operating Model (NOM) launched January 1, 2023; progress on recruitments and matching staff skills.
  - Comprehensive Compliance Improvement Plans (CIPs) published online from 2022/23.
  - Digitalization including MyRRA online platform launched December 2023.
  - Adoption of Common External Tariff (CET) version 2022 for customs.
  - Introduction of dynamic risk management and Ministerial Orders on voluntary disclosure and VAT rebates to support new Tax Procedure and VAT laws.

### Spending rationalization and public financial management
- Spending rationalization strategy (submitted end-May 2024 RT/SB):
  - Disaggregated costing of planned expenditure rationalization across wages and salaries, non-wage recurrent, and capital expenditures.
  - Measures and estimated savings:
    - Public wage freeze and phased recruitment plan: estimated overall saving of RWF 5.7 billion.
    - Reduce cost of public travels, meetings and events and continue to digitalize public services: RWF 83.9 billion.
    - Strengthen management, oversight and monitoring of public investments, and rephase non-priority investment projects planned for FY24/25: RWF 408.6 billion.
- Subsidy policy and fuel pricing:
  - Will refrain from providing any subsidies on fuel prices going forward; support poor and vulnerable households through targeted measures as needed.
  - April 2023: phased out diesel subsidy introduced in October 2022; domestic prices now reflect international market price of fuel.
  - Introduced a stabilization fee on petroleum prices to recoup losses from temporary subsidy; all losses recouped and current prices aligned with market prices.
  - March 16, 2024: discontinued pandemic-era subsidy on public transportation services.

### Fiscal structural reforms, PFM, and fiscal risk management
- Organic Budget Law (OBL) implementation:
  - Ministerial Order required for full implementation expected to be vetted by the Law Reform Commission and approved by Cabinet by June 2024.
  - OBL improves the budget and MTEF, institutionalizes fiscal risk management practices, and aligns reporting periods for public sector entities to the fiscal year.
- Public Financial Management (PFM) improvements:
  - Medium Term Expenditure Framework (MTEF): developed MTEF user manuals; plan to integrate budget costing framework into IFMIS in subsequent years and improve FY24/25 planning cycle.
  - Accrual accounting migration:
    - Valuation and recognition of non-financial government assets and liabilities to be completed by end-FY23/24.
    - Valuation of government-owned land across the country and buildings in Kigali completed.
    - Data collection ongoing to expand coverage to government buildings outside Kigali, public road infrastructure, transport equipment, and other machinery.
    - From June 2024, public debt will also be reported.
    - Consolidated financial statements containing values of non-financial public assets and liabilities to be published after April 2025 following an audit.
    - Consolidated annual financial statement for entire public sector, including SOEs, contingent liabilities, and PPPs, to be finalized by end-June 2025.
  - IFMIS rollout:
    - Continued rollout to primary and secondary schools; secondary schools integrated via SDMS.
    - IFMIS rollout to primary schools expected to be finalized by end-2025.
  - Fiscal data digitalization:
    - Requested IMF TA to develop a PFM digitalization and fiscal data strategy to improve data quality, fiscal transparency, and support data-driven policies.

### SOE governance, fiscal risks, and oversight
- Institutional strengthening:
  - OBL institutionalized oversight and management of fiscal risks by clarifying the Fiscal Risk Committee (FRC) role, mandating MINECOFIN appointments, and requiring publication of an annual Fiscal Risk Statement (FRS) as part of annual budget documents.
  - Public Procurement law gazetted November 2022; Ministerial Orders governing public procurement gazetted October 2023. Specific provisions to strengthen procurements in SOEs expected by June-2024.
- SOE legal and governance reforms:
  - Review of legal framework underpinning SOE governance to cover National Investment Policy, Privatization Law, and Privatization Policy.
  - Privatization Law adopted by Parliament and expected to be enacted by July 2024.
  - Draft Presidential Order (in consultation with the World Bank) to determine prerequisites for SOE establishment and management rules.
- SOE portfolio and corporate governance actions:
  - Triage exercise of 34 fully state-owned enterprises:
    - 4 to be privatized
    - 1 to be liquidated
    - 29 to be retained under state management, subject to Cabinet approval
  - Plans to enhance SOE Board oversight via selection criteria, accountability frameworks, and remuneration; strengthen internal audit functions and introduce better risk management frameworks with IMF TA support.
- Managing and mitigating SOE fiscal risk:
  - Strengthen MINECOFIN’s Portfolio Oversight Department capacity.
  - Commitment to conduct SOE health-checks for all SOEs and stress tests for at least two high-risk SOEs every quarter.
  - Stress tests completed: Bella Flowers and King Faisal hospital by end-2023; REG and WASAC by end-March 2024.
  - Hiring of five portfolio specialists to the Department to be completed.
  - With IMF TA, train new staff on health check and stress test tools to conduct in-depth forward-looking assessments of at least five SOEs, including identification of credible mitigation measures (proposed new end-March 2025 RT).
  - Will explore potential strengthening of institutional framework to efficiently enforce identified mitigation measures.

*IMF staff report excerpt (content unit: 1rwaea2024001)*

### 24.      Strengthening transparency in fiscal reporting remains a key priority. To underscore the

### 1rwaea2024001 - 24.      Strengthening transparency in fiscal reporting remains a key priority. To underscore the

### Fiscal transparency and reporting
- Plan to conduct an FTE follow up mission by the first half of 2025 to underscore progress since the 2019 Fiscal Transparency Evaluation (FTE).
- Commitment to expand coverage of fiscal reports in GFS 2014.
- Since April 2023, quarterly budget execution reports under GFS 2014 for the general government have been published 60 days after the end of each quarter.

### Public investment management (PIMA) and project transparency
- 2022 PIMA published in August 2023; implementation of recommendations ongoing.
- Plan to publish annually a pipeline of appraised major projects (over RWF 15 billion, as defined in Section 4.3 of the National Investment Policy) and project selection criteria alongside budget documentation, while redacting commercially sensitive information (end-October 2024 RT/SB).
- Other PIMA recommendations to be implemented include:
  - Improving reporting of contingent liabilities from public corporations, PPPs, and districts.
  - Making all project appraisal documents public.
  - Publishing multi-year project costs using existing data stored in the IFMIS.

### Beneficial ownership (BO) transparency
- Companies began submitting BO information since April 2023.
- New companies are not registered until BO information is provided; failure for existing companies to provide BO information leads to sanctions.
- Ongoing supervision and enforcement measures to increase compliance; cross-checking company information with tax and revenue authorities; removal of dormant companies; on-site inspections to verify self-assessments.
- Plan to amend the definition of BO in the Public Procurement law to harmonize with the AML/CFT law.
- Law governing companies grants competent authorities access to BO information in the central register; Rwanda will work towards ensuring this access is direct and timely in practice.

### Monetary policy framework and inflation outlook
- Continue strengthening forward-looking, interest-rate-based monetary policy; increase reliance on data, analysis, and forecasts and strengthen market operations.
- Inflation and policy stance:
  - 3-month average headline inflation of 8.9 percent fell within the program inner bound of 3–9 percent set for end-December 2023.
  - 2024 inflation projected to remain close to 5 percent, the mid-point of the NBR’s 5±3 percent target band.
  - Risks: geopolitical tensions (ongoing wars in Ukraine and the Middle East), Red Sea disruptions, weather-related agricultural risks.
  - At the MPC meeting on February 22, 2024, the NBR maintained its policy rate at 7.5 percent.
  - If developments unfold as projected, the MPC might consider starting to reduce the rate gradually while ensuring inflation stays within the target band.

- Strengthening formulation and communications:
  - Continued development and reliance on the Forecasting Policy and Analysis System (FPAS) to guide monetary policy.
  - Expansion of nowcasting and near-term forecasting tools to include weather risks.
  - Development and planned 2024 launch of a consumer price expectations survey.

### Monetary policy operations and market development
- Focus on developing money, bond, and foreign-exchange markets to strengthen transmission.
- With IFC assistance, legal gaps in insolvency, payment system, and banking laws identified; roadmap formulated to implement Global Master Repurchase Agreement (GMRA).
- NBR and Capital Market Authority leading legal review; full GMRA rollout including signing by all banks envisaged by end-December 2024 (end-December 2024 RT).

### Exchange rate policy and liquidity management
- Commitment to a flexible exchange rate and proactive liquidity management; limit FX interventions to minimize excessive volatility.
- Expect FX pressures to start moderating in 2024 and throughout the medium term as policy adjustment takes place and external demand recovers.
- Reserve coverage expected to exceed the minimum adequate level of 4 months of imports in 2025, excluding RSF disbursements.
- Actions and plans:
  - November 2023: finalized and adopted a diagnostic study of foreign exchange markets (with IMF TA).
  - Revise NBR’s official exchange rate calculation methodology to include market transactions from the previous day (end-June 2024 RT/SB); adopted methodology and parallel calculations started; progressive implementation expected from July 2024.
  - Explore further excess liquidity reduction to improve transmission.
  - Continue regular, formal, and transparent consultations with FX market participants based on IMF TA recommendations.

### NBR safeguards, statistics, and market coverage
- Submit to Cabinet draft amendments to the NBR Law to strengthen mandate, financial and personal autonomy, transparency and accountability in line with safeguards assessment recommendations (proposed new end-September 2025 RT).
- Expand coverage of monetary and financial statistics (MFS):
  - Publishing sectoral balance sheets for Central Bank (1SR) and Other Depository Corporations (2SR).
  - Recently started compiling the Sectoral Balance Sheet for Other Financial Corporations (4SR); commit to publishing them quarterly.
  - With IMF TA support, expand MFS coverage to include, as part of Other Financial Corporations Survey, insurance companies, Rwanda Development Bank, and private pension institutions; start publishing on quarterly basis (proposed new end-March 2025 RT).

### Financial sector supervision and stability
- Onsite examinations to focus on credit risks, loan classification and provisioning, and scrutiny of banks’ borrower assessments; complemented by offsite surveillance.
- Continue conducting credit surveys to the private sector and quarterly macro stress tests.
- Banks to submit the third annual ICAAP and ILAAP by the end of April 2024 for review; ICAAP includes banks’ risk appetite and projected capital positions for 2024/2 5; ILAAP provides contingency plans on liquidity.
- Policy priorities:
  - Monitor granular risk metrics, intensive supervision, quarterly stress tests, and quarterly Financial Stability Committee meetings.
  - Enhance NBR’s risk monitoring and stress testing capacity through more granular data, analysis, and longer-horizon stress test models.
  - Closely monitor household credit growth and consider macroprudential policies as needed.
  - Intensify monitoring of large exposures under Pillar II and apply capital add-ons; commit to tightening regulatory limits on large exposures if associated risks increase.
- Credit developments:
  - Combined loan portfolios of banking and microfinance sectors grew at more than 20 percent annually in 2023.
  - Microfinance sector grew particularly fast, focusing mostly on retail loans.
  - Stock of credit mainly concentrated in corporate sector; share of household credit increasing.
  - Most loans are collateralized.
- Stress testing: BNR conducts micro and macro level stress testing quarterly to complement banks’ stress tests; enhanced by surveys on corporate indebtedness, sectoral assessments, and credit survey.

### Financial inclusion and digital financial services
- Financial inclusion is a priority for achieving Rwanda’s National Strategy for Transformation; target of achieving 90 percent formal financial inclusion by end-2024.
- 2023 actions:
  - NBR prepared new financial inclusion guideline focused on digitalization and gender balance.
  - NBR’s financial inclusion data dashboard operational.
  - Based on FinScope 2020 Survey: formal financial inclusion at 77 percent of adult population, with 74 percent for women, and 81 percent for men.
  - 2024 FinScope Survey work started; results expected to be released in May 2024.
  - Digital payments have more than quadrupled since pre-COVID levels.
  - Interbank settlement service expanded to 24/7 and to microfinance institutions (MFIs); multilateral interoperability for retail digital payments is operational for mobile money providers, banks, and MFIs.
  - Consumer protection platforms: INTUMWA Chatbot (complaints) and Gereranya (comparator website) operational.
  - Female financial inclusion guidelines published in November 2023 with four guiding pillars: (i) integrate female inclusion in strategic plans, (ii) customize products and mainstream gender, (iii) leverage digital financial technology, (iv) build female financial capabilities.

### Structural policies and social protection
- Continued efforts to improve resilience, social safety nets, health and education for vulnerable groups, and economic diversification.
- Cash transfer adjustments to offset high fuel and food prices:
  - Increased monthly cash transfer from RWF 7,500 to RWF 10,000 for Nutrition Sensitive Direct Support (NSDS) beneficiaries.
  - Increased from RWF 10,000 to RWF 15,000 for Expanded Public Works (ePW) beneficiaries.
  - NSDS expanded from eighteen districts to twenty districts, totaling 164,434 beneficiaries including 28,929 pregnant women and 146,171 children under 2 years; transfers adjusted to household level.
- Vision 2020 Umurenge Program (VUP) performance and coverage since July 2022:
  - 123,015 households (HHs) received direct support (DS); 34,106 (27.7 percent) HHs headed by males and 88,909 (72.3 percent) headed by females.
  - 109,217 HHs employed in classic and expanded public work (cPW); includes 49,046 female-headed and 60,171 male-headed HHs.
  - 100,136 eligible HHs benefited from ePW; includes 70,168 HHs headed by females & 30,068 HHs headed by males.
  - NSDS program supported beneficiaries have reached 323,370 since 2019.
  - About 51,741 microcredit loans were issued to 56,719 beneficiaries, including 29,335 females and 27,384 male beneficiaries; repayment rate stands at 75 percent.
  - 100,000 households benefited from emergency cash transfers.
- Dynamic social registry:
  - Rolled out in February 2024 to all beneficiaries of social protection schemes under VUP and beneficiaries of subsidized CBHI enrollment (end-May 2024 RT/SB).
  - Registry covers about 90 percent of all households and is fully integrated with main government information systems for real-time updates.
- Climate shock preparedness and livelihood measures:
  - Central fund of RWF1.4 billion set up to provide temporary shock-responsive cash transfers (SRCT).
  - Initiatives include agriculture inputs, insurance for agriculture products and livestock, green job creation, EjO HEZA saving scheme, and advocacy to increase cultivable land.
- Education and human capital:
  - Subsidized national school feeding program introduced to boost school attendance; delivery and targeting improvements planned.
  - Scale-up of measures to reduce stunting and promote early childhood development via child sensitive Expanded Public Works and NSDS co-responsibility cash transfers.
- Efforts to promote economic inclusiveness and close gender gaps in education through national policies and strategies including the Girls’ Education Policy (2008) and 12-year basic education system.

*Source: RWANDA — INTERNATIONAL MONETARY FUND*

### introduction of school feeding program. The gender gap at a higher tertiary education level is

### 1rwaea2024001 - introduction of school feeding program. The gender gap at a higher tertiary education level is

### Gender, education, and labor market measures
- Rapidly closing gender gap at higher tertiary education level.
- Law regulating labour in Rwanda (N° 66/2018 of 30/08/2018) provides more generous maternity leave and flexible work hours to help retain female employees in formal sector jobs.
- Policy focus to strengthen women’s position in the labor market, especially in the private sector, by:
  - Improving technical skills.
  - Increasing opportunities to access and utilize formal financial schemes such as the Women’s Guarantee Fund and the Agricultural Guarantee Fund.

### Trade, industrial policy, and regional integration
- Ongoing trade integration policy reforms include reviews of:
  - The Industrial Policy.
  - The National Trade Policy.
  - The National Export Strategy.
  - Development of an e-Commerce Strategy.
- Objectives of the new trade policy:
  - Increase the contribution of manufactured value-added products and services.
  - Improve the domestic trade and investment environment.
  - Strengthen the trade capacity of the private sector.
- Objectives of the new industrial policy:
  - Upgrade industrial capabilities in targeted subsectors.
  - Increase Made in Rwanda production and access to markets.
  - Support environmental sustainability and green growth.
- AfCFTA Implementation Strategy (adopted in June 2022) will:
  - Fast-track integration of competitive firms into commodity value chains.
  - Prioritize support to competitive services hubs (tourism, financial services, ICT, logistics and distribution).
- Major projects prioritized to implement trade-logistics strategy and attract private investment:
  - Kigali Logistic Platform (a large-scale inland container depot).
  - Bugesera International Airport.
- Support from the World Bank and development partners to reduce tariff and non-tariff barriers and seize AfCFTA preferential market access opportunities.
- Emphasis on building a more skilled labor force to support export-oriented activities.

### Pandemic preparedness and health manufacturing
- On February 13, 2023, the Government of Rwanda and the World Health Organization (WHO) signed a collaboration agreement to implement three Emergency Preparedness and Response Flagship Initiatives:
  - (i) Strengthening and Utilizing Response Groups for Emergencies (SURGE).
  - (ii) transforming African surveillance system (TASS).
  - (iii) Promoting Resilience of Systems for Emergencies (PROSE).
- The two-year project will strengthen epidemic intelligence focusing on indicator-based, event-based, community-based, lab-based and One Health (OH) based surveillances.
- Initiative to construct the first African mRNA vaccine manufacturing facility for regional supply remains on track.
- Six mobile vaccine production units by German pharma company BioNTech arrived in Rwanda in April 2023.

### Building resilience to climate change — reforms, budgeting, and risk integration
- RSF-supported reforms have progressed significantly.
- Climate budget tagging:
  - Fulfilled third review RM6 to (i) implement climate change budget tagging as a prototype on development expenditure only and publish a climate budget statement using the first budget tagging results, and (ii) identify in the Budget Framework Paper (BFP) how climate information has been used in decision making.
  - Used the climate budget tagging prototype in planning the FY24/25 budget.
  - Plan to expand climate change budget tagging framework to cover all expenditure.
  - Expected outcome: monitoring of climate-related activities at budget preparation and execution phases to improve transparency.
- Integrating climate risks into financial planning:
  - Completed expansion of quantitative climate risk analysis to include PPPs and SOEs vulnerable to climate-related risk (third review RM7).
  - Published individual risk analysis of SOEs and PPPs submitted to fiscal risk committee (third review RM14).
  - Fiscal Risk Statement includes qualitative assessment of climate risk spillovers and possible mitigating measures for ten individual SOEs across the five most climate vulnerable sectors.
- Strengthening disaster reduction and management:
  - With IMF TA support, developed financing mechanism at local level to enhance ability of local governments to mobilize resources for disaster risk reduction and management (third review RM13).
  - Adopted action plan focusing on: (i) mobilizing additional resources while respecting fiscal sustainability; (ii) freeing up resources by improving efficiency to create fiscal space for disaster risk response and management activities.
  - Specific actions include mobilizing additional grant financing for adaptation projects, enhancing ownership, transparency, and objectivity of disaster expenditures, minimizing cost of disasters, optimizing disaster response efficiency, and enhancing coordination and knowledge.

### Climate mitigation, green finance, and project pipelines
- Tax policy measures to reduce CO2 emissions in line with NDC objectives:
  - Increase in fuel levy.
  - Higher registration fees for high-emission vehicles.
  - Complementary policies to encourage e-mobility, including zero VAT rating on all e-vehicles and parts.
- Commitment to scale up climate financing and Green Investment Facility (“Ireme Invest”):
  - Near-term focus: scale up Ireme Invest via blending non-concessional and concessional resources, and de-risking.
  - At COP28, presented three programs on landscape restoration, climate-smart agriculture, and sustainable urbanization using a programmatic approach.
  - Plans to introduce green taxonomy to catalyze private financing to green projects.
  - Commitment to ensure fiscal risks from government’s financial exposure through equity contributions or guarantees are identified, transparently reported, and mitigated.
  - September 2023: Cabinet approved a carbon market framework developed with World Bank and UNDP to establish regulatory framework for accessing international carbon markets.
  - MINECOFIN created a new climate finance department.
- Developing bankable green projects:
  - Ireme Invest has started lending operations with a total value of its green projects pipeline estimated at US$ 55 million over the 2024-25 period.
  - Ireme Invest established a project preparation facility managed by the Rwanda Green Fund (“FONERWA”).
  - Rwanda’s Public Green Investment Facility (“Intego”) has identified 14 bankable public investment projects at the total value of US$ 49 million. Funding of these projects will start in FY24/25 and continue over a 3-year period.
  - Scaling up challenges: Rwanda Development Bank and businesses need time to strengthen understanding of technical requirements for green investments.

### Program monitoring under PCI, RSF, and SCF — modalities and selected quantitative items
- Monitoring frameworks:
  - Policy Coordination Instrument (PCI): monitored through quantitative targets, monetary policy consultation clause, standard continuous targets, and reform targets (detailed in Tables 1a–2 and 4; definitions in Technical Memorandum of Understanding).
  - Resilience and Sustainability Facility (RSF): monitored through reform measures (detailed in Table 3).
  - Stand-by Credit Facility (SCF): semi-annual reviews coinciding with PCI; monitored through quantitative performance criteria, continuous criteria and structural benchmarks (as set out in Tables 1a–2, and 4; definitions in TMU).
- Selected table entries and numeric items (preserved exactly as presented):
  - PCI Quantitative Targets / SCF Arrangement Performance Criteria (selected rows as shown in source):
    - Ceiling on the debt-creating overall balance, including grants: -4561 -457 -406 Met -1,159 -698 -993
    - Floor on stock of Net Foreign Assets: 844-1 843 1,040 Met9239981,163
    - Ceiling on net accumulation of domestic arrears: 00Met000
  - PCI Continuous Targets / SCF Arrangement Continuous Performance Criteria:
    - Ceiling on stock of external payment arrears (US$ million): 00Met000
    - Ceiling on present value (PV) of new public and publicly guaranteed external debt (US$ million): 3 1,047716Met5371,163323
  - Monetary Policy Consultation Band (inflation bounds as listed):
    - Inflation, upper bound, percent: 10.09.09.09
    - Inflation, upper inner-bound, percent: 9.08.08.08
    - CPI Inflation target: 6.08.9Met5 .05.05.0
    - Inflation, lower inner-bound, percent: 3.02.02.02 .0
    - Inflation, lower bound, percent: 2.01.01.01 .0
  - Memorandum items (selected figures exactly as shown):
    - Total priority spending: 2 800 805 1, 7008501,750
    - Floor on domestic revenue collection: 2, 5 1,3191,3072, 8551,6063,331
    - Stock of new external debt contracted or guaranteed by nonfinancial public enterprises (US$ million): 3 28 32 231713
    - Total budget support (US$ million): 2 195330747239861
    - Budget support grants (US$ million): 9493161157238
    - Budget support loans (US$ million): 10123858682623
    - RSF Disbursements (US$ million): 504977960
    - RWF/US$ program exchange rate: 1,0711,0711,1651, 1651,165
- Reform Targets and Structural Benchmarks (selected items and dates):
  - Fiscal Pillar:
    - Submit to Cabinet a spending rationalization strategy as an annex to the FY 24/25 budget framework paper. Target: end-May 2024. Status: 1 Met. Objective: Improve credibility of fiscal consolidation.
    - Publish a pipeline of appraised major projects (over RWF 15 billion) and project selection criteria annually alongside budget documentation. Target: end-October 2024. Objective: Strengthen expenditure efficiency.
    - Cabinet to approve a comprehensive package of measures to broaden tax base by streamlining tax holidays and tax expenditures. Target: end-January 2025. Objective: Improve DRM.
    - Conduct in-depth forward-looking financial assessments of at least five SOEs. Target: end-March 2025. Objective: Contain fiscal risks. (Proposed new RT)
  - Monetary and Financial Pillar:
    - Revise the NBR’s official exchange rate calculation methodology. Target: end-June 2024. Status: 1. Objective: Strengthen monetary policy operations.
    - Enact full GMRA rollout, including signing of the GMRA by all banks. Target: end-December 2024. Objective: Strengthen monetary policy operations.
    - Expand coverage of monetary and financial statistics to include insurance companies, Rwanda Development Bank, and private pension institutions; start publishing quarterly. Target: end-March 2025. (Proposed new RT)
    - Submit draft amendments to the NBR Law to strengthen mandate, autonomy, and transparency. Target: end-September 2025. (Proposed new RT)
  - Resilience Pillar:
    - Finalize roll-out of a dynamic social registry to all beneficiaries of social protection schemes under VUP and beneficiaries of subsidized CBHI enrollment. Target: end-May 2024. Status: 1 Met. Objective: Build resilience through social safety nets.
- RSF Reform Measures (selected RMs and status):
  - RM6: Implement climate change budget tagging prototype on development expenditure and publish climate budget statement. 3rd Review. Status: Met.
  - RM7: Further expand quantitative climate risk analysis to include PPPs and SOEs. 3rd Review. Status: Met.
  - RM13: Develop financing mechanism at the local level to enhance local governments’ ability to mobilize resources for disaster risk reduction and management. 3rd Review. Status: Met.
  - RM9, RM11, RM10, RM12, RM15: Listed for 4th Review (various actions including expanding tagging, publishing comprehensive tagging results and quarterly reports, issuing ISSB guideline, adopting green taxonomy).
- Summary of External Borrowing Program (Table 4 excerpts, preserved formatting and figures as presented):
  - By sources of debt financing (Millions of USD): 1535716116053716511163768323 (and breakdowns by concessional and non-concessional categories as listed in source).
  - Uses of debt financing (Millions of USD): Infrastructure1051463825381128169711491; Social Spending8634150701857925080; Budget Financing3731951858618538600; Other25240000404152.
  - Note: Present value calculated using individual loan terms and 5 percent program discount rate (as stated in source).

*Source: Rwanda — IMF country document (content as provided).*

### 2.      Program exchange rates. For program purposes, the exchange rates for end-June 2023 in

### 2.      Program exchange rates.

### Program exchange rates (end-June 2023)
- For program purposes, the exchange rates for end-June 2023 in the IMF’s International Financial Statistics database will apply.
- Table 1. Program Exchange Rates from June 30, 2023 (US$ per Currency Unit, Unless Indicated Otherwise):
  - Rwanda Franc (per US$)      1,164.6
  - Euro 1.087
  - Japanese Yen (per US$) 144.9
  - SDR 1.330

### A. PCI Quantitative Program Targets / SCF Performance Criteria — Overview
- Coverage: budgetary central government (excluding Peace-Keeping Operations and including grants).
- Measurement basis:
  - Ceilings for December 31, 2023, and June 30, 2024 are cumulatively measured from July 1, 2023.
  - Ceilings for December 31, 2024, and June 30, 2025 are cumulatively measured from July 1, 2024.
- Definition: debt-creating overall fiscal deficit is overall fiscal deficit, valued on a commitment basis including grants and excluding:
  - (i) transactions in expense and/or financial assets added to the budgetary central government arising from debt assumption of called loan guarantees for which the corresponding guaranteed loan had already been included in the Debt Sustainability Analysis (DSA);
  - (ii) all expenses in UN peace-keeping operations (PKO) and disbursed PKO financing.
- Overall fiscal deficit defined according to GFSM 2014 as net lending/net borrowing after adjusting for policy lending.
- Budgetary central government expenditure defined based on payment orders accepted by the Treasury, as well as those executed with external resources.
- This QT/QPC is set as a ceiling on the debt-creating overall fiscal deficit as of the beginning of the fiscal year.

### Adjustors to the Debt-Creating Overall Fiscal Deficit
- The ceiling on the debt-creating overall deficit will be adjusted upward:
  - by the amount of any shortfall between actual and programmed budgetary grants (as defined in Table 1a of the LOI/MEFP).
  - by the amount of unexpected budgetary central government expenditure on cereals imports in the case of a food emergency and in spending relative to the programmed amount on fertilizer subsidy in the case of significant increases in fertilizer import price.
- The ceiling on the debt-creating overall deficit will be adjusted upward to a maximum of 137 billion, representing the amount of foreign financed net acquisition of non-financial assets (foreign financed capital expenditure) financed with a drawdown of accumulated government deposits from previously disbursed capital grants and loans.

### Floor on Net Foreign Assets (NFA) of the National Bank of Rwanda (NBR)
- A floor applies to NFA of the NBR for June 30, 2024, December 31, 2024, and June 30, 2025.
- Definition: NFA of the NBR in Rwandan francs is defined, consistent with the e-GDDS template, as external assets readily available to, or controlled by, the NBR net of its external liabilities.
- Exclusions from NFA measurement:
  - Pledged or otherwise encumbered reserve assets (including swaps with resident and non-resident institutions with original maturity of one year or less).
  - Reserve assets corresponding to undisbursed project accounts.
  - Holdings of Eurobonds issued by the Government of Rwanda.
- Conversion rules:
  - Foreign assets and liabilities in U.S. dollars are converted to Rwandan francs using the U.S. dollar/Rwanda franc program exchange rate.
  - Foreign assets and liabilities in other currencies are converted to U.S. dollars by using the actual end-of-period U.S. dollar/currency exchange rate.
- Foreign liabilities include, inter alia, use of IMF resources (by both the central government and the NBR).
- RSF disbursements are excluded from both the foreign assets and the foreign liabilities side.
- Adjustors:
  - The floor on NFA will be adjusted downward by the amount of any shortfall between actual and programmed budgetary loans (excluding RSF disbursements) and grants per Table 1a of the LOI/MEFP.
  - The floor on NFA will be adjusted downward by the amount of unexpected public expenditures on cereal imports in the case of a food emergency and/or on fertilizer imports in the case of significant fertilizer import price increases.

### Ceiling on the Stock of External Payment Arrears
- A continuous ceiling applies to the non-accumulation of payment arrears on external debt contracted or guaranteed by the budgetary central government and entities that form part of the budgetary process.
- Definition: external payment arrears are the amount of overdue external debt service obligations (principal and interest) arising in respect of obligations incurred directly or guaranteed by the budgetary central government and entities that form part of the budgetary process.
  - A payment is overdue when it has not been paid in accordance with the contractual date (considering any contractual grace periods).
  - Arrears resulting from the nonpayment of debt service for which a clearance framework has been agreed or a rescheduling agreement is sought are excluded.

### Ceiling on Net Accumulation of Domestic Expenditure Arrears of the Budgetary Central Government
- A ceiling applies to the net accumulation of domestic expenditure arrears of the budgetary central government.
- Definition: domestic expenditure arrears are unpaid claims that are overdue by more than 90 days.
  - Accumulation is calculated as the cumulative change in the stock of expenditure arrears of more than 90 days at each test date from the stock at the end of the previous fiscal year (June 30).
  - Arrears related to claims preceding 1994 will not be counted in the calculation.
- Note: A negative target thus represents a floor on net repayment.

### Ceiling on the Present Value (PV) of New External Debt Contracted or Guaranteed by the Government
- Definition of debt: as set out in paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 15688-(14/107), December 5, 2014). Key elements:
  - Debt means a current (not contingent) liability created under a contractual arrangement requiring future payments in assets or services.
  - Primary forms include:
    - i. Loans (including deposits, bonds, debentures, commercial loans and buyers’ credits; repurchase agreements and official swap arrangements).
    - ii. Suppliers’ credits (deferral of payments after delivery).
    - iii. Leases (present value at inception of all lease payments expected during agreement, excluding payments for operation, repair or maintenance).
  - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt.
- External debt defined as debt contracted or serviced in a currency other than the Rwandan Franc.
- A continuous ceiling is applied to the PV of all new external debt (concessional or non-concessional) contracted or guaranteed by the central government, including commitments contracted or guaranteed for which no value has been received.
  - Ceilings for June 30, 2024, and December 31, 2024 are cumulative from January 1, 2024.
  - The ceiling for June 30, 2025, is cumulative from January 1, 2025.
- Exemptions:
  - Normal import-related commercial debts having a maturity of less than one year;
  - Rescheduling agreements;
  - External borrowing solely to refinance existing public-sector external debt and which helps to improve the profile of the repayment schedule;
  - IMF disbursements.
- Contracting rule: a debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the Government of Rwanda.
- Valuation:
  - For program purposes, the value in U.S. dollars of new external debt is calculated using the program exchange rates.
  - The PV of new external debt is calculated by discounting all future debt service payments (principal and interest) based on a program discount rate of 5 percent and taking account of all loan conditions, including maturity, grace period, payment schedule, front-end fees and management fees.
  - The PV is calculated using the IMF model for this type of calculation based on the amount of the loan.
  - A debt is concessional if on the date contracted the ratio of its present value to its face value is less than 65 percent (equivalent to a grant element of at least 35 percent).
  - For loans with grant element zero or less than zero, the PV is set at an amount equal to the face value.
- Variable-rate debts:
  - For debts carrying a variable interest rate in the form of a benchmark interest rate plus a fixed spread, the PV is calculated using a program reference rate plus the fixed spread (in basis points) specified in the debt contract.
  - Program reference rate for the six-month USD LIBOR is 3.34 percent.
  - Spreads relative to six-month USD LIBOR:
    - six-month Euro LIBOR over six-month USD LIBOR is -150 basis points.
    - six-month JPY LIBOR over six-month USD LIBOR is -350 basis points.
    - six-month GBP LIBOR over six-month USD LIBOR is -250 basis points.
    - For currencies other than Euro, JPY, and GBP, the spread over six-month USD LIBOR is -150 basis points.
  - Where the variable rate is linked to a benchmark other than six-month USD LIBOR, a spread reflecting the difference between the benchmark rate and six-month USD LIBOR (rounded to the nearest 50 bps) will be added.
  - The program reference rate and spreads will remain fixed for the duration of the program.
  - Given the anticipated global transition away from LIBOR, this TMU can be updated to reflect relevant benchmark replacements (U.S. Secured Overnight Financing Rate (SOFR); U.K. Sterling Overnight Index Average (SONIA); EURIBOR; and Tokyo Overnight Average Rate (TONAR)) prior to the complete phase out, once operationally feasible.
- Adjustor:
  - An adjustor of up to 5 percent of the external debt ceiling set in PV terms applies in case deviations from the QT/QPC on the PV of new external debt are prompted by a change in the financing terms (interest, maturity, grace period, payment schedule, upfront commissions, management fees) of a debt or debts.
  - The adjustor cannot be applied when deviations are prompted by an increase in the nominal amount of total debt contracted or guaranteed.
- Reporting requirement:
  - The authorities will inform IMF staff of any planned external borrowing and the conditions on such borrowing before the loans are either contracted or guaranteed by the government.

### Monetary Policy Consultation Clause (MPCC)
- Definition: MPCC headline inflation is defined as the year-on-year rate of change in the monthly Consumer Price Index (CPI), averaged for the past 3-months, as measured by National Institute of Statistics of Rwanda (NISR).
- Consultation triggers:
  - If observed headline inflation falls outside the ±3 percentage point range around the mid-point of the target band value for end-June 2024, end-December 2024, and end-June 2025 (as specified in Table 1a in the LOI/MEFP), the authorities will conduct discussions with Fund staff.
  - If observed headline inflation falls outside the ±4 percentage point range around mid-point of the target band value for those test dates, the authorities will complete a consultation with the Executive Board focusing on:
    - (i) the stance of monetary policy and whether the Fund-supported program remains on track;
    - (ii) the reasons for program deviation, taking into account compensating factors;
    - (iii) proposed remedial actions if deemed necessary.

### Memorandum Items and Data Reporting Requirements
- Reporting timelines (unless specified otherwise):
  - Weekly data: within seven days of the end of each week.
  - Monthly data: within five weeks of the end of each month.
  - Quarterly data: within eight weeks.
- Data items and special definitions:
  - Priority expenditure: transmitted quarterly; defined as the sum of recurrent expenditures, domestically financed capital expenditures, and policy lending identified as priority in line with Rwanda’s National Strategy for Transformation (NST-1). Monitored through the Integrated Financial Management System (IFMS) at the program level at the end of each quarter.
  - Detailed data on domestic revenues: transmitted monthly; defined according to GFSM 2014 taxes and other revenues, per the budgetary central government statement of operations table, but including:
    - (a) local government taxes (business licenses, property tax, and rental income tax);
    - (b) local government fees;
    - excluding receipts from Peace Keeping Operations.
  - Data on contracting and guaranteeing of new non-concessional external borrowing with non-residents: transmitted on test dates.
    - Excludes external borrowing by Bank of Kigali and Rwanda Development Bank (RDB) which are assumed not to seek or be granted a government guarantee.
    - Applies to private debt with official guarantees extended (including future swaps involving foreign currency loans guaranteed by the public sector).
    - Excludes external borrowing solely to refinance existing public-sector debt that improves the public sector debt profile.
    - Excludes on-lending agreement between Government of Rwanda and public-sector enterprises.
- Policy-change notifications:
  - Authorities will inform IMF staff in writing prior to making any changes in economic and financial policies that could affect the outcome of the financial program (including customs and tax laws, wage policy, and financial support to public and private enterprises).
  - Authorities will inform IMF staff of changes affecting continuous QTs and will furnish a description of program performance for the QTs/QPCs as well as reform targets/structural benchmarks within 8 weeks of a test date.
  - Information submission frequency and time lag as indicated in Table 2 of the TMU; information should be mailed electronically to the Fund (email to the Resident Representative and the Mission Chief).

*Source: 2. Program exchange rates and related program terms, as provided in the source content.*

### 2.      The ongoing efforts related to government policies are relevant for climate change

### 2.      The ongoing efforts related to government policies are relevant for climate change adaptation

### Major climate resilience and green growth investments
- The Green Climate Fund approved two major investments worth US$80 million in October 2023.
  - US$39.1 million: project to build climate resilience in Rwanda’s Congo Nile Divide through forest and landscape restoration, to be implemented in 10 districts.
    - Manage 278,000 hectares of forests.
    - Promote agroforestry techniques in 2,000 hectares of plantations.
  - US$42.8 million: additional contribution to Ireme Invest to provide the fund the ability to work with Rwanda’s private sector by providing access to credit at a lower interest rate than at market rates.
    - Target investments: renewable energy, climate-smart agriculture, water-efficient systems, green buildings, and clean transportation.

### Integrated Climate Finance Strategy and NDC financing
- The government, led by MINECOFIN, is developing an integrated Climate Finance Strategy to promote institutional coordination in scaling climate financing.
- Overall cost of implementing the NDCs in Rwanda: US$ 11 billion.
- Financing secured for the 2020–25 period: US$4.5 billion.
- Overall financing gap for the 2020–30 period: US$ 6.5 billion (IMF, 2023).
- Strategy objectives and features:
  - Align financing needs with financing instruments.
  - Mobilize private and public sector financing for adaptation and mitigation.
  - Cover both private and public sector financing and include an overview of roles and responsibilities and a work plan.
  - Adopt international best practice on climate finance taxonomy, project selection processes, tracking and monitoring climate and environment financing for projects.
  - Include a regulatory framework for climate-focused financial instruments.
- Expected Cabinet approval: by July 2024.

### Government policies, PPPs, and mitigation commitments
- June 2023 cooperative approach announced with development partners to facilitate PPPs, scale-up climate finance, and crowd in private climate investment.
  - Rwanda aims to mobilize an additional €300 million to build climate resilience.
  - AFD: €50 million programmatic budget support and a €3 million technical assistance grant.
  - Partners include Agence Française de Développement (AFD), European Investment Bank (EIB), Cassa Depositi e Prestiti (CDP), and the International Finance Corporation (IFC).
- Partnerships: IFC, Government of Rwanda, and FONERWA to jointly develop long-term investment plans for climate-smart agriculture and sustainable urbanization to increase private sector role.
- PPP framework reforms recommended:
  - Address gaps and inconsistencies in legal and regulatory frameworks governing PPPs.
  - Recognize PPPs within the Organic Budget Law and ensure alignment between the PPP Act and PPP guidelines.
  - Upgrade the PPP project cycle.
  - Issue new regulations introducing a new methodology for PPP project selection including climate change considerations and preparation of high-quality feasibility studies.
- International commitments:
  - Rwanda joined the Global Renewables and Energy Efficiency Pledge at COP28, which calls for tripling the world’s installed renewable energy generation capacity by 2030.
  - National Carbon Market Framework (NCMF) officially launched at COP28.

### Challenges, fiscal risks, and institutional capacity
- Mobilizing financing for investments in Rwanda’s 2020 NDC remains an important challenge.
- Ongoing efforts to systematically assess fiscal risks from climate change and mainstream appraisal of climate change projects into the public investment management system, supported by the RST.
- The latest Fiscal Risk Statement (published in April 2023) includes an assessment of the macroeconomic impact of climate change but does not yet provide specific measures to mitigate their effects.

### World Bank engagement: operations and knowledge support
- World Bank operations and approvals:
  - Technical assistance to Rwanda Development Board (RDB) and Rwanda Green Fund for a Wildlife Conservation Bond to support chimpanzee conservation (US$15+ million grant).
    - Model follows South African “Rhino Bond”; conservation funding provided by bond investors in the form of a foregone coupon payment.
  - December 2023: Board approval of the First Private Sector Green Growth Development Policy Financing (P180196) to unlock climate finance and improve management of national parks, nature reserves and buffer zones.
  - November 2023: Approval of the ASCENT Rwanda project (P180575): US$300 million from IDA and US$100 million co-financing from AIIB.
    - 68 percent of the financing are expected to generate climate co-benefits.
  - Early April 2024: conditions for sale and purchase under the Emissions Reduction Purchase Agreement (ERPA) between the World Bank (representing Ci-Dev) and the Government of Rwanda were met.
    - First transaction covering ERs generated from World Bank projects on off-grid solar and clean cooking in Rwanda over 2021 and 2022 expected before June 2024; verification for these ERs has been completed.
- World Bank knowledge and analytical support:
  - Forthcoming Country Economic Memorandum (CEM) includes chapters on integrating climate considerations into sector policies and investments, with recommendations for resilience and low-carbon transition.
  - Support for Rwanda to become a leader in Africa on Natural Capital Account (NCA) and integrate natural capital and climate considerations in macro-modeling; assistance on monitoring the economy and modeling policy and climate shocks.
  - Analytical work for Rwanda Urban Mobility Improvement Project (P176885): “Exploring Enabling Energy Frameworks for Battery Electric Buses in Rwanda,” funded by Quality Infrastructure Investment Partnership (QII), to assess e-mobility readiness and enabling energy frameworks for battery electric buses.
  - GoR preparing “Validation and Definition of an AssetCo Business Model for Electric Bus Provision in Kigali” to conduct a detailed techno-commercial feasibility study for initial e-bus deployment focusing on developing the AssetCo model and its institutional and contractual frameworks.

*Source: 1rwaea2024001*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1rwaea2024001.pdf_